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STOCK-BASED COMPENSATION | 9 Months Ended
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Sep. 30, 2021
STOCK-BASED COMPENSATION [Abstract] |
STOCK-BASED COMPENSATION |
10) | STOCK-BASED COMPENSATION
Equity Incentive Plans Brooklyn’s stock-based compensation plans consist of the Restated 2020 Equity Incentive Plan (the “Restated 2020 Plan”) and the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). Brooklyn’s board of directors has designated its compensation committee as the administrator of the foregoing plans (the “Plan Administrator”). Among other things, the Plan Administrator selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award. At Brooklyn’s special meeting of stockholders held on March 15, 2021, the stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which provided for the issuance of up to 3,368,804 shares of common stock. At Brooklyn’s annual meeting of stockholders held on September 3, 2021, the stockholders approved the Restated 2020 Plan, which provides for (1) an increase in the number of shares of common stock that can be issued under the plan by 5,116,132 to 8,484,936 shares of common stock in total and (2) an annual increase in the number of shares reserved for issuance on January 1 of each year from 2022 through 2031 equal to the lesser of (i) 5% of the number of shares of common stock outstanding on the immediately preceding December 31 and (ii) such smaller number of shares of common stock as may be determine by the board of directors. No other provision of the 2020 Plan were amended. Awards under the Restated 2020 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the Restated 2020 Plan may either be incentive stock options or nonqualified stock options, may have a term of up to ten years, and are exercisable at a price per share not less than the fair market value on the date of grant. As of September 30, 2021, there were no stock options outstanding under the Restated 2020 Plan. In June 2019 Brooklyn adopted the 2019 Performance Incentive Plan (the “2019 Plan”), Upon the approval of the 2020 Plan, no future grants could be made under the 2019 Plan. As of September 30, 2021, all outstanding options under the 2019 Plan either had been exercised or had expired in accordance with the terms of the applicable award or the 2019 Plan. In May 2021, Brooklyn’s board of directors adopted the 2021 Inducement Plan, which provides for the grant of up to 1,500,000 share-based awards as material inducement awards to new employees in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide. The 2021 Inducement Plan expires in May 2031. As of September 30, 2021, there were 372,880 nonqualified stock options and 221,640 restricted stock units (“RSUs”) outstanding under the 2021 Inducement Plan. Stock-Based Compensation Stock Options The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of each stock option award granted with service-based vesting requirements, using the Black-Scholes option pricing model. The Company recognizes the fair value of stock options granted as expense on a straight-line basis over the requisite service period. The risk-free rate is based on the observed interest rates appropriate for the expected life. The expected life (estimated period of time outstanding) of the stock options granted is estimated using the “simplified” method as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility is based on the Company’s historical volatility over the expected life of the stock option granted, and the Company assumes no dividends. There were no stock options granted during the three and nine months ended September 30, 2020. Brooklyn granted 232,300 nonqualified stock options during the three months ended September 30, 2021. During the nine months ended September 30, 2021, Brooklyn granted 3,598,048 nonqualified stock options, including two stock option grants made to Howard J. Federoff, M.D., Ph.D. upon his appointment as Brooklyn’s chief executive officer and president. Dr. Federoff was granted a nonqualified stock option covering 2,627,915 shares of common stock (the “Time-Based Option”). The Time-Based Option was granted at a per share exercise price equal to the closing price of the common stock on the NYSE American stock exchange on the date of grant. Of the shares covered by the Time-Based Option, 25% will vest on the one-year anniversary of the grant date, and the remaining shares will vest in substantially 36 equal monthly installments thereafter, so long as Dr. Federoff provides continuous service to the Company throughout the relevant vesting date. Dr. Federoff was also granted a performance-based nonqualified stock option covering 597,253 shares of common stock (the “Milestone Option”). The Milestone Option was granted at a per share exercise price equal to the closing price of common stock on the NYSE American stock exchange on the date of grant, and its fair value is $4,288,738. The Milestone Option will fully vest upon the first concurrence by the U.S. Food and Drug Administration that a proposed investigation may proceed following review of a Company filed investigational new drug application in connection with that the License Agreement. This milestone is subject to Dr. Federoff’s continuous service with the Company through such vesting date. Both the Time-Based Option and the Milestone Option were granted outside of Brooklyn’s equity incentive plans discussed above. The unvested portion of the Time-Based Option and the Milestone Option will be cancelled upon the termination of Dr. Federoff’s employment with the Company for any reason, subject to certain vesting acceleration provisions upon a qualifying termination, as described in his employment agreement with Brooklyn. Unless earlier terminated in accordance with their terms, each of the Time-Based Option and the Milestone Option will otherwise expire on the tenth anniversary of their respective grant date and be subject to the terms and conditions of the respective option agreement approved by Brooklyn. Each of the Time-Based Option and the Milestone Option was intended to constitute an “employment inducement grant” in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide and was offered as an inducement material to Dr. Federoff in connection with his hiring. The following weighted-average assumptions were used for grants issued during the three and nine months ended September 30, 2021:
|  | Three months ended September 30, 2021 |  |  | Nine months ended September 30, 2021 |
Weighted average risk-free rate |  |  | 0.97 | % |  |  | 1.06 | %
Weighted average volatility |  |  | 143.29 | % |  |  | 134.88 | %
Dividend yield |  |  | 0 | % |  |  | 0 | %
Expected term |  | 6.08 years |  |  | 6.08 years |
There were no options exercised during the three months ended September 30, 2021. During the nine months ended September 30, 2021, there were 1,300 options exercised for total cash proceeds of $10,202. The options exercised had a total intrinsic value of $47,010. There were no options exercised during the nine months ended September 30, 2020. RSUs Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date. During the three and nine months ended September 30, 2021, Brooklyn granted 116,350 and 221,640 RSUs, respectively, with a weighted average grant date fair value of $10.07 and $14.60, respectively. No RSUs were granted during the three and nine months ended September 30, 2020. No RSUs vested during the three and nine months ended September 30, 2021 and 2020. The Company recognizes the intrinsic value of RSUs granted as expense on a straight-line basis over the requisite service period. Restricted Stock Pursuant to the Merger, Brooklyn LLC’s 3,427 outstanding restricted common units were exchanged for 629,643 shares of Brooklyn’s restricted common stock. There were no changes to any conditions and requirements of the restricted common stock. The shares vest quarterly beginning on March 31, 2021 and continuing through December 31, 2022. Due to the modification of the restricted common units, the fair value of the restricted common stock immediately after the Merger was compared to the fair value of the restricted common units immediately prior to the Merger, and the change in fair value of $249,905 was recognized in the statement of operations for the nine months ended September 30, 2021. The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period. Stock-based compensation expense for the three months ended September 30, 2021 and 2020 was $1,728,304 and $22,734, respectively. Stock based compensation for the nine months ended September 30, 2021 and 2020 was $3,301,697 (including the $249,905 of modification expense discussed above) and $68,202, respectively. Forfeitures are recognized as incurred. Stock-based compensation is recorded in general and administrative expense and research and development expense in the statement of operations.

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